September
10, 2022
The
problem of indolent retail shareholders
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Illustration: Aïda Amer/Axios |
The
first rule of meme stocks is
that you short them at your peril — no matter how overvalued they
might seem, the crowd can always bid them up. That said, shares in
Digital World Acquisition Corp, or DWAC, sure seem like they're
defying gravity right now, even after having fallen 87% from their
peak last October.
Why
it matters: DWAC
shares are trading on the hope — some would say pure
faith — that the SPAC will be able to acquire Truth Social,
the Twitter competitor associated with Donald Trump. The problem is
that the deal hasn't closed yet — and DWAC hasn't been able to muster
sufficient votes from its retail shareholders to extend the deadline.
The
big picture: Institutions
have established procedures for voting their shares; individuals
don't. As a result, according to ProxyPulse,
while 83% of institutional investors vote their shares, just 30% of
retail investors do — and that number has been slowly and steadily
declining since the firm started measuring in 2017.
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Say Technologies, which was bought by
Robinhood for $140 million in 2021, was supposed to help reverse
that trend. But Say refused to share with Axios what proportion of
Robinhood's DWAC or AMC holders voted their stock when it really
mattered, which suggests to me that the numbers weren't particularly
impressive.
By
the numbers: DWAC's
sponsors have spent $2.8 million of their own money to extend the life
of their company for another three months, and have pushed the
deadline to vote back to October 10. But they still need 65% of
shareholders to vote in favor, and right now, even after a massive
marketing push, they're only at roughly 40%, per Reuters.
How
it works: DWAC
is now on borrowed time, and will liquidate at $10 per share when the
clock finally runs out. That makes it hard to justify a share price
that is still more than $20.
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Even if DWAC does get shareholder approval to extend
its own life, it seems increasingly unlikely to receive SEC approval
to buy Trump Media & Technology Group. Without that approval, DWAC
is worth no more than $10 per share.
The
bottom line: AMC similarly
couldn't get approval from its army of retail "apes" to get permission
to issue new stock, so it had to construct an awkward new preferred
security instead. With DWAC, the consequences of retail apathy are
much more existential.
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Bonus chart: DWAC's share price
Data: Yahoo Finance; Chart: Axios Visuals |
DWAC
shares hit
an intraday high of $175 on the day the company announced it was
buying Trump's social network. They've had a bumpy ride since then,
but are still trading well above their $10 intrinsic value.
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Felix Salmon
Felix
Salmon is the chief financial correspondent at Axios. He writes
the weekly Axios Capital newsletter and covers all the ways that
money drives the world.
felix@axios.com |
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